Everything you might not know about the bailout

Posted: Monday, October 06, 2008

By Matthew Towery

Everybody seems to have a boatload of questions about the past week's dizzying series of events surrounding the proposed "bailout" of American financial institutions. To cut through the muddle, let's check off on a short list of vital questions I asked myself, and the answers I discovered, about the Big Mess.

Question: Was there really a "crisis?"

Who knows? There's evidence that even some large corporations have shifted gears down to a "slow pay" method of paying vendors. And some have tried to get new funds, only to find that the private borrowing cupboard is bare.

All this is starting to "trickle down" to small businesses that use modest lines of credit to meet operating expenses; or that make daily do on a cash-in, cash-out basis.

Whether or not large companies pay their bills on time, the phone and electric companies - not to mention the landlord and the government - still expect what's coming to them, and on time. So in a sense, a crisis has been developing on Main Street.

What no one is sure of is whether a temporary uptick or a looming near-collapse of the nation's money supply is on the way.

Opinion is divided. President Bush and Treasury Secretary Henry Paulson told members of Congress that money markets had all but ground to a stop. That tenuous new ground looked near enough to Main Street that Bush felt an impulse to edge over to the panic button.

But when the House of Representatives rejected the so-called partisan bailout plan, the stock markets, after first plunging, then started behaving as if the failure to pass the rescue bill did nothing to seriously undermine confidence in our monetary system.

Question: What started the defection of Republican members in the House for the initial bailout bill?

I can hardly believe I'm saying it, but for second time in this presidential general election campaign, former House Speaker Newt Gingrich has essentially framed an entire policy debate.

First, he used his platform on Fox News to force the issue of domestic drilling for oil and natural gas, by pushing his "capital drill, capital here, capital drill, capital now" effort that he initiated last spring. All the time, John McCain was mum on the issue. Now it's at the top of the GOP's talking points list.

Next, Gingrich became one of the first and loudest critics of the proposed first financial rescue plan. He declared early on that if McCain voted for the bill as initially proposed, Obama would win the election. Gingrich communicated his sentiments to the House Republican leadership, many of whom are his closest allies from the days when he was their leader. He made it clear that he saw huge problems with the bill.

Knowing Gingrich as I do, I read his footprints from the start in the shifting mood of his former colleagues. Republican House Leader John Boehner of Ohio's internal statement to his colleagues said that while he would vote for the bill, it was nevertheless a "crap sandwich." That was hallmark Gingrich - give permission for the rank and file to vote their consciences, instead of in lockstep with their own leadership.

So was Gingrich right? When at first it looked like the monetary system would seize up in a matter of days, I thought we were back to the Newt of the old "government shutdown" days. But in fairness, he did point out many flaws in the bill.

One day we may know if he was spot on with his position - that being the day we might all be standing in a soup line, talking about Great Depression II.

Question: Was Secretary of the Treasury Paulson too arrogant in his approach to the legislation?

Bluntly put, yes.

Question: Did most members of Congress understand the nature of the alleged crisis?

Bluntly put, no. Most of them have either never run a business, or haven't in way too long, so that their understanding of economics is sophomoric. Even a less high-handed messenger than Henry Paulson would have had trouble penetrating these hard noggins.

Question: Why did House Speaker Nancy Pelosi start attacking President Bush in her speech on the floor of the House prior to the vote?

Possibly to kill it. Pelosi had already told some powerful Democrats who wanted to vote for the bill that it might be OK because enough Republicans were defecting from "yes" votes that the legislation wasn't going to survive.

Question: Should John McCain have become so involved in the legislation and so closely identified with advocating its passage?

For a man who seems to do what he believes is right, the answer is yes. But as a candidate for president, absolutely not. We have since polled the presidential race in many states, and McCain has lost ground.

That near-inevitability likely was not lost on Speaker Pelosi when she made her pre-vote speech blasting President Bush.

 Matt Towery served as the chairman of former Speaker Newt Gingrich's political organization from 1992 until Gingrich left Congress. He is a former Georgia state representative, the author of several books and currently heads the polling and political information firm InsiderAdvantage.